CALGARY, Jan. 21, 2014 /CNW/ – Cequence Energy Ltd. (“Cequence” or the “Company”) (TSX: CQE) is pleased to provide an operational update and a capital budget for the first six months of 2015.
As previously forecast, Cequence expects 2014 production to average approximately 11,000 boepd. Following the start-up of the expanded 13-11 facility at Simonette in January, production has reached a rate of 12,000 boepd.
Since the sale of Ansell in July, 2014, Cequence has had an active drilling program in Simonette with two rigs running continuously on three separate Montney pad locations. Cequence is encouraged by the results of its recent drilling program which is utilizing enhanced fracture design characteristics on the Montney formation similar to the practices implemented by other area operators. To date, eight Montney wells have been completed and have initially performed at, or above expectations. Longer term production performance is expected to validate the enhanced completion techniques being utilized by Cequence.
The first three wells from the 1-32 pad (completed in October) have a combined average 30 day IP rate of 3,300 boepd (83% natural gas). Three additional Montney wells have been successfully completed from the 1-32-61-26W5 pad in early January, bringing the total number of wells from this pad to six. The three most recent wells are currently being tied in to the 1-32 surface facility and are expected to be on production by early February. Cost performance has been improving with the three most recent wells drilled and completed for an average cost of $8.0 MM per well.
Two Montney wells were successfully completed in early December from the 12-26-61-27W5 pad. The two wells have produced for 16 days on restricted cleanup at a combined rate of 1,750 boepd (92% natural gas).
Two additional Montney wells (1.0 net) from the winter program have been drilled from the 15-15-61-26W5 pad and are scheduled to be completed in February.
The Company’s Dunvegan well at 11-12 has been producing with an average 90 day IP rate of 1,300 boepd. One additional Dunvegan well (0.65 net) has been drilled from the 2-12-61-2W6 pad on budget and the completion is expected to commence in late January.
Cequence has had excellent execution and has successfully completed 14 consecutive wells, including 350 frac stages, in the past twelve months.
Simonette 13-11 Facility Expansion
The Company completed the expansion of its 100 mmcfd facility at Simonette (13-11) and chose to move the commissioning of the facility from December, 2014 to January, 2015 to avoid higher costs and potential service quality issues over the Christmas season. Commissioning of the plant involved a full one week shut down of the entire Simonette field beginning on January 6th with a systematic one week step-up restart which commenced on January 13th. As of January 20th, total corporate production based on field estimates has ramped to 12,000 boepd with approximately 2,500 boepd to be turned on or restarted by February.
Outlook
Maintaining a strong balance sheet in the current market environment is critical to our long term strategy of creating value for shareholders. With the recent weakness in commodity prices, Cequence has decided to eliminate three wells from its Q1 2015 budget. As a result, budgeted capital expenditures for the first quarter have been reduced to $22 million from the previous $45 million.
The Company is forecasting funds flow to be approximately $12 million in the first quarter of 2015 based on estimates of AECO pricing of $2.70 CAD/GJ and WTI USD$50/bbl. March 31, 2015 net debt is budgeted to be approximately $85 million (1.8 times first quarter annualized funds flow). Cequence has total current borrowing capacity of $195 million comprised of $60 million in term debt and a $135 million senior credit facility. The term debt matures in October 2018 and is unsecured.
With the full plant shutdown being moved to January, and a reduction in the winter capital expenditure program, the Company has revised its first quarter production estimate to average between 12,500 to 13,000 boepd.
Cequence has an active hedging program and currently has 23.3 mmcfd hedged through Q1 (or 40 % of expected Q1 natural gas production net of royalties) at a price of $4.22 per mcf, and 18.7 mmcfd hedged for the balance of 2015 at a price of $4.11 per mcf.
Cequence possesses a strong balance sheet and has retained significant flexibility to plan its capital program for the second half of 2015 and 2016 and can respond quickly to improving commodity prices.
About Cequence
Cequence is a publicly traded Canadian energy company involved in the exploration, exploitation, acquisition, development and production of natural gas and crude oil in western Canada. Further information about Cequence may be found in its continuous disclosure documents filed with Canadian securities regulators at www.sedar.com.
[expand title=”Advisories & Contact”]
Production Tests
Any references in this release to IP rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue to produce and decline thereafter and are not necessarily indicative of long-term performance or ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company. Such rates are based on field estimates and may be based on limited data available at this time.
Forward looking Statements or Information
Certain statements included in this press release constitute forward-looking statements or forward-looking information under applicable securities legislation. Such forward-looking statements or information are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this press release may include, but are not limited to, statements or information with respect to: the Company’s guidance and forecasts; expected capital expenditures, business strategy and objectives; and future development, and drilling plans, including the anticipated benefits resulting therefrom and the timing thereof. Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable. Undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding, among other things: the impact of increasing competition; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline rates; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters; and the ability of the Company to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.
Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information. These risks and uncertainties may cause actual results to differ materially from the forward-looking statements or information. The material risk factors affecting the Company and its business are contained in the Company’s Annual Information Form which is available on SEDAR at www.sedar.com.
The forward-looking statements or information contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise unless required by applicable securities laws. The forward looking statements or information contained in this press release are expressly qualified by this cautionary statement.
Additional Advisories
The press release contains references to terms commonly used in the oil and gas industry. Netback is not defined by IFRS in Canada and is referred to as a non-GAAP measure. Netbacks equal total revenue less royalties, operating costs and transportation costs. Management utilizes this measure to analyze operating performance.
Funds flow from operations is a non-GAAP term that represents cash flow from operating activities before adjustments for decommissioning liability expenditures, proceeds from the sale of commodity contracts and changes in non-cash working capital. The Company evaluates its performance based on earnings and funds flow from operations. The Company considers funds flow from operations to be a key measure as it demonstrates the Company’s ability to generate the cash flow necessary to fund future growth through capital investment and to repay debt. The Company’s calculation of funds flow from operations may not be comparable to that reported by other companies. Funds flow from operations per share is calculated using the same weighted average number of shares outstanding used in the calculation of income (loss) per share.
Non-GAAP measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
BOEs are presented on the basis of one BOE for six Mcf of natural gas. Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
For the first nine months of 2014, the ratio between the average price of West Texas Intermediate (“WTI”) crude oil at Cushing and NYMEX natural gas was approximately [23:1] (“Value Ratio”). The Value Ratio is obtained using the firstnine months 2014 WTI average price of $99.77 (US$/Bbl) for crude oil and the first nine months 2014 NYMEX average price of $4.42 (US$/MMbtu) for natural gas. This Value Ratio is significantly different from the energy equivalency ratio of 6:1 and using a 6:1 ratio would be misleading as an indication of value.
The TSX has neither approved nor disapproved the contents of this news release.
SOURCE Cequence Energy Ltd.